BARCELONA TRACTION, LIGHT and POWER COMPANY vs.

SPAIN

FACTS: Barcelona Traction, Light and Power Company was incorporated in 1911 in Toronto, Canada for
the purpose of creating and developing an electric power production and distribution system in Spain.
According to the Belgian gov’t, some years after WWI Barcelona Traction’s share capital came to be very
largely held by Belgian nationals, but the Spanish government contends that the Belgian nationality of
the shareholders was not proven. After WWI, the company was declared bankrupt by the Spanish court
due to its failure to pay the interest of the bonds and its assets were seized. After the Canadian
interposition ceased, Belgium brought an action for damages against Spain for what it termed
expropriation of the assets of the Barcelona Traction company on the ground that a large majority of the
stock of the company was owned by Belgian nationals. Spain raised the preliminary objection that
Belgium lacked standing to bring suit for the damages to a Canadian company.

ISSUE: Does the state of the shareholders of a company have a right of diplomatic protection if the state
whose responsibility is invoked is not the national state of the company?

RULING: No. In order for a state to bring a claim in respect of the breach of an obligation owed to it, it
must first establish its right to do so. This right is predicated on a showing that the defendant state has
broken an obligation toward the national state in respect of its nationals. In the present case it is
therefore essential to establish whether the losses allegedly suffered by Belgian shareholders in
Barcelona Traction were the consequence of the violation of obligations of which they are beneficiaries.
In the present state of the law, the protection of shareholders requires that recourse be had to treaty
stipulations or special agreements directly concluded between the private investor and the state
in which the investment is placed. Barring such agreements, the obligation owed is to the corporation,
and only the state of incorporation has standing to bring an action for violations of such an obligation.
Nonetheless, for reasons of equity a theory has been developed to the effect that the state of the
shareholders has a right of diplomatic protection when the state whose responsibility is invoked is the
national state of the company. This theory, however, is not applicable to the present case, since Spain is
not the national state of Barcelona Traction. Barcelona Traction could have approached its national
state, Canada, to ask for its diplomatic protection. For the above reasons, the Court is of the opinion
that Belgium lacks standing to bring this action.